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Ground Rent: what is it?

What is Ground Rent?

Sometimes when buyers purchase a flat or house, it is a leasehold property. This means that the ground it is built on is not included in the sale and is owned by what is called the freeholder. This makes the buyer a leaseholder, and they are essentially a tenant of the freeholder with a very long-term tenancy agreement.

It means that an annual payment called ground rent is made to the freeholder, and that in many cases the leaseholder must request permission from the freeholder before making changes to the property, like building an extension for example. Ground rent is not the same as a service charge.

It all sounds very simple in theory, but in recent years there has been a wave of leaseholders bringing claims for professional negligence in relation to ground rent.

Why are people bringing claims for professional negligence?

Typically, an annual ground rent fee is somewhere between £200-£400. The length of a ground lease is usually 99 years and this fee increases every 33 years within that time period. However, in recent years, developers have started inserting clauses into their leasehold agreements which were either not picked up by or not communicated to the buyer. This has resulted in thousands of buyers ending up with homes they cannot sell and cannot afford to pay the ground rent on, falling into arrears.

One example is where a clause in the leasehold agreement of a south-east London home meant the ground rent would always match a percentage of the property’s rental value, increasing as this value did over time. The home was originally bought for £150,000, with the ground rent starting at an annual fee of around £60. After twenty years, the annual ground rent had increased to an absurd £32,000 per year.

In some cases, the lease is sold to another freeholder without the knowledge or consent of the leaseholder, and this new land owner brings in new clauses that the buyer did not agree to when they first bought the property. Often, these new clauses can mean an increase in the cost of buying out the freehold. An example of this is where the original cost for the leaseholder to buy out was £3,000 (still a very sizeable fee!) when the buyer first bought the property, but then a few years later after a new freeholder had come into place, this fee had risen to a staggering £17,600, which the homeowner could not afford to pay.

The reason for this lack of transparency is a variable combination of junior, inexperienced solicitors being tasked with the conveyancing, developers recommending solicitors in their own network to the buyer and estate agents glossing over details in order to push a sale through.

Where can I get more advice?

If you are a homeowner with a leasehold agreement and think you may have been a victim of professional negligence, you can contact us for a no obligation, free initial consultation about whether or not you have grounds for a claim.

Call us now on 0800 019 3460, or email enquiries@specterpartnership.co.uk. Alternatively, you can use our quick online form here.